Apple Earnings Shock Offset By Good Cop/Bad Cop Macro Data

While the main topic of conversation overnight was the Apple implosion after earnings (which was mercifully spared inbound calls from repo desk margin clerks who had all gone home by the time the stock hit $460), there was some macro data to muddle up the picture, which, like everything else in this baffle with BS new normal came in "good/bad cop" pairs.

In early trading, all eyes were focused on Japan, whose trade and especially exports imploded when the country posted a record trade gap of 6.93 trillion yen ($78.27 billion) in 2012 and the seventh consecutive monthly drop in exports which showed that improved sentiment has yet to translate into hard economic data. Finance ministry data on Thursday showed that exports fell 5.8 percent in the year to December, more than economists' consensus forecast of a 4.2 percent drop. Trade with China was hit particularly hard following the ongoing island fiasco, which means that all the ongoing Yen destruction has largely been for nothing as organic growth markets simply shut off Japan. This ugly news was marginally offset by a tiny beat in the HSBC China manufacturing PMI which came slightly above consensus at 51.9 vs exp. 51.7, the highest print in 24 months, but as with everything else coming out of China one really shouldn't believe this or any other number in a country that will not allow even one corporate default to prevent the credit-driven illusion from popping.

Moving to Europe it too was a good/bad news story: shortly before 3 am the BIS FX team was summoned to defend the 1.33 support after French manufacturing PMI plummeted from 44.6 to 42.7, on expectations of a rise to 45.1 and the realization that the recession has fully engulfed Europe's core. However, this disturbing print was promptly offset by German PMI which in turn rose from 46.0 to 48.8, on expectations of a 46.8 print. Whether this modest bounce will be enough to push Germany out of what is now the first leg of a recession remains to be seen.

Judging by the fact that leading German bank announced plans to fire 4,000-6,000 earlier, we doubt there is much hope for a quick rebound in Germany.

Elsewhere, Spain reported its last depressionary data point, which was the Q4 unemployment, and which as expected rose to above the expected 26%, or a record 26.02% to be precise in the last quarter, and well above the 25.02% in Q3. Finally, completing the sad European picture were Italian November retail sales which too were worse than expected at -0.4%, on expectations of a -0.1% print, and the prior was revised further down from -1% to -1.3%.

China's PMI and Apple's results are the two competing stories overnight with the latter weighing on sentiment in the Asian session. Indeed besides Japan (+1.2%), major bourses in Hong Kong, China and South Korea are down -0.1%, -0.3% and -0.9% respectively. Before we take a closer look at Apple’s disappointing results, the HSBC manufacturing PMI in China came in slightly above consensus (51.9 v 51.7) this morning. This was the highest print in 24 months with the series having gradually recovered from the lows of 47.6 in August of last year. Away from China, other Asian data flow overnight has generally been on the soft side. Korea’s Q4 GDP (+1.5% yoy v +1.8% yoy expected) fell short of market consensus while Japan posted a wider-thanexpected trade deficit (JPY641.5B v JPY-522.8B) in December. For Korea this is the slowest quarterly yoy growth since September 2009 and the Japanese trade deficit in 2012 is the widest on record on an annual basis.

Turning to Apple, the company managed to beat EPS consensus ($13.81 v $13.53) but revenue fell short of market expectations ($54.5bn v $54.9bn). More importantly forward looking revenue and gross margin guidance also came in light relative to street estimates. In terms of product performance in the latest quarter, our US colleagues noted that iPhone sales were largely in line but iPad sales were lighter than expected and Macs sales sharply disappointed. Apple’s shares plunged around 10% in after hours trading and have now lost a third of their value from the peak in September last year. Apple’s after market move is also dampening the performance of the S&P 500 Futures (-0.4%) and NASDAQ 100 Futures (-1.5%) overnight. It will be interesting to see how US markets trade throughout today after what proved to be a positive finish to yesterday’s trading session.

Indeed the S&P 500 edged higher (+0.15%) for its 6th consecutive session yesterday as sentiment was boosted by news that the US House of Representative has voted (285 v 144) to suspend the debt ceiling for three months. The earnings scorecard before the closing bell was also generally positive with 65% and 81% of companies that reported yesterday coming ahead of analysts’ EPS and revenue expectations, respectively. IBM’s better results helped drive the Dow (+0.49%) up to just less than 1% away from its all time highs. For the record the S&P 500 is also just 5pts away from the symbolic 1,500 mark.

On the fixed income side, its quite interesting to note that the Dell-driven LBO theme is pushing the skew on the CDX IG index to negative territory. The index edged a tad tighter yesterday and now trades about 5bps ‘rich’ to intrinsic value as some single names are seeing demand for protection on LBO concerns. Overall January continues to be a good month for risk, continuing the theme from the back end of 2012. However the growth outlook isn’t necessarily much better than where we were 3 months ago. The IMF published its updated global growth forecasts yesterday and now expects global GDP to grow by 3.5% this year. This is a touch lower than the 3.6% forecast they had in October last year. This is still ok but we'll need some upward momentum in the data to reach this level still.

In terms of the day ahead, flash PMIs from France, Germany and the Eurozone will be the key European data print today. As we said in our outlook, these readings need to get into the low 50s to justify current levels of markets rather than just above the mid-40s they generally are in Europe at the moment.

They have a few months grace to get there without upsetting the party but these printsalong the way will be informative. Elsewhere Merkel and Cameron will both speak at day-2of the Davos conference today. On the other side of the pond we also get the preliminaryMarkit PMI in the US as well as the usual weekly jobless claims. 3M and Microsoft aresome of the bigger names reporting today.

I guess AMZN, CRM, FB, LNKD, and all these other non-profit 'businesses' are screaming buys in the face of a money-minting AAPL that just happens to 'disappoint' the anal-yst clowns. the market goes up as people hope/expect ever rising profits. AAPL goes down because they deliver ever-rising profits but people "fear" they may soon stop growing. You really have to love this super-efficient animal, formerly known as stock market...